Insurance Headache After Chinese Baby Food Recall

PITTSBURGH (CN) – Faced with $30 million in losses after recalling lead-contaminated baby cereal in China, H.J. Heinz Co. wants a federal judge to come down on its insurer. The recall occurred after the Zhejian Provincial Food and Drug Administration announced on Aug. 18, 2014, that it had sealed hundreds of boxes of Heinz’s high-protein, dry baby cereal after test results revealed that the product contained high levels of lead, according to the complaint filed Thursday. Heinz says the “accidental contamination” involved a single production cycle of a single ingredient in its product: defatted soy powder from Qingdao Longhi Food Co. Ltd. Nearly 1,500 boxes of the cereal were ultimately recalled, and Heinz says it provided notice of the loss to its insurer, Starr Surplus Lines Insurance Co., on Aug. 5. Estimating that its “ongoing” loss will ultimately cost the ketchup king $30 million, Heinz says it has provided Texas-based Starr with thousands of pages of information and documents. In addition to having responded promptly to any of Starr’s requests, Heinz says it made its personnel available, worked with a claims adjuster, made forensic accounting records available, and met with Starr’s forensic accountant several times. Out of the blue, Starr “has demanded Heinz assist Starr Surplus in its attempt to shift liability to another party under subrogation rights,” according to the complaint. “After initially agreeing with Heinz’s loss calculation, for the first time on May 1, 2015, Star Surplus announced that it purportedly disputes Heinz’s loss calculation,” the complaint states. Heinz said the insurer has meanwhile refused to turn over a copy of the loss calculation by Starr’s accountant, RGL Forensics. Starr allegedly sent Heinz a reservation of rights letter on Feb. 12, 2015. Heinz says its policy provides coverage for each insured event up to $25 million, and that “accidental contamination” is one type of insured event under the policy. “Under the policy, the ‘self-insured retention’ for ‘accidental contamination’ is ‘$5,000,000 per insured event,” the complaint states. The insurance claim stems from what Heinz says its Product Contamination Policy with Starr categorizes as an “accidental contamination.” H.J. Heinz Co. wants punitive damages for breach of contract and bad faith. It is represented by Jared Zola of Dickstein Shapiro in Manhattan. A spokesman for Heinz says the company “is seeking payment of an insurance claim which is past due.” “This relates to a loss resulting from a supplier’s ingredient in Asia which was in violation of Heinz exacting specifications,” spokesman Michael Mullen added. “The loss involved our Asia Pacific business.”